Modelling the Impact of Demographic Change Upon the Economy

Over the next few decades there will be significant changes in the demographic structure of nearly all developed countries. Such dramatic demographic change could have a powerful impact upon saving behaviour, but estimates of how great the effects will be differ depending on what evidence is used. This paper argues that simulations based on calibrated general equilibrium models are likely to provide the most reliable evidence. A model is developed and is used to assess the impact of reforms to pension systems.     

The Foreclosure–House Price Nexus: A Panel VAR Model for U.S. States, 1981–2009

Despite housing's economic importance, little has been written on how foreclosures and home prices interact in a framework that includes macroeconomic and housing variables such as employment, permits or sales. Panel VAR results for quarterly state‐level data indicate that price–foreclosure linkages run both ways. Foreclosures negatively impact home prices. The negative impact of prices on foreclosures, however, is much larger. These results suggest the low‐frequency association observed between foreclosures and prices is mostly driven by the endogenous adjustment of foreclosures to prices via the strategic choices of homeowners and lenders, rather than through the effects of foreclosures on home prices.     

The new post-industrial state

With the socioeconomic restructuring of the 1970s and 1980s, the idea of a smooth transition to a post-industrial service economy has required significant revision. We outline three such revisions: the ideas of informatization, informalization, and dualism. The first two are reworkings of post-industrial theory so as to emphasize one or other undervalued trend in industrial society, and are in principle quite compatible. The third emphasizes inequalities in power and resources that are plausibly associated with developments seen as benign by the others. Each has distinct implications for democratic development. However, we argue that while elements of all three models are present in current trends, so that the future might be best seen as a compromise between them, in fact all approaches fail to grasp the real significance of socioeconomic and technological restructuring. A more fruitful approach, with distinctive policy implications, is proposed.     

THE COUPON EFFECT ON TERM PREMIUMS

Monthly holding period returns for U.S. Treasury bills and notes of identical maturity indicate a significant coupon effect upon term premiums. Hotelling's T² test of the vectors of mean term premiums indicates that term premiums are not statistically significant for notes but are significant for bills. Mean-variance and stochastic dominance criteria indicate an investment preference for bills over notes on a pretax basis. Because the data set is Treasury bills and notes, which are identical except for coupon level, these results are evidence of a coupon effect on term premiums.     

The Mediterranean Fruit Fly and the United States: Is the Probit 9 Level of Quarantine Security Efficient?

Cold treatment periods, and associated levels of quarantine security, that maximize net US welfare under USDA's current medfly detection and control program are examined using a deterministic bioeconomic optimization model . As anticipated, the efficient level of quarantine security is shown to increase with indices of medfly pressure (initial infestation rates) in areas in which the medfly is known to exist (the QCs) . Efficient cold treatment periods and weighted mean medfly survival rates are 8, 11, and 12 days and 5.0 × 10^–2, 1.7 × 10^–3, and 5.2 × 10^–4 under low, moderate, and high initial infestation rates, respectively. When model output is averaged across initial infestation rates, an 11‐day cold treatment period, resulting in a weighted mean medfly survival rate of 1.6 × 10^–3, maximizes US welfare. These findings suggest that the current minimum cold treatment period of 14 days and the current objective of US cold treatment policy—the probit 9 level of quarantine security—are economically inefficient. Adopting the 11‐day cold treatment period is shown to increase US social surplus by an annual $24.9 million, of which $21.5 and $3.4 million would accrue to US consumers and producers, respectively, and QC producer surplus by an annual $24.8 million. Nous avons examiné, à l’aide d’un modèle déterministe d’optimisation bioéconomique, les périodes de traitement par le froid et les niveaux de quarantaine de sécurité connexes qui maximisent le bien‐être net des États‐Unis d’après le programme actuel de détection et de lutte contre la cératite, instauré par le USDA. Comme prévu, le degré de quarantaine de sécurité efficace augmente en fonction des indices de pression des ravageurs (indices d’infestation initiale) dans les pays où la cératite est présente (pays dont les produits sont soumis à une quarantaine). Selon qu’il s’agit d’un indice d’infestation initiale faible, moyen et élevé, les périodes de traitement par le froid efficaces sont de 8, 11 et 12 jours respectivement et les taux de survie moyens pondérés de la cératite de 5,0 × 10^–2, 1,7 × 10^–3, et 5,2 × 10^–4 respectivement. Lorsque l’on établit la moyenne pondérée de la sortie du modèle par taux de survie, une période de traitement de 11 jours et un taux de survie moyen pondéré de 1,6 × 10^–3 maximisent le bien‐être des États‐Unis. Ces résultats donnent à penser que la période minimale actuelle de traitement par le froid de 14 jours et la politique actuelle concernant le traitement par le froid (la norme probit 9) sont économiquement inefficaces. L’adoption d’une période de traitement par le froid de 11 jours augmenterait le surplus collectif des États‐Unis de 24,9 millions (M$) par année, dont 21,5 M$ et 3,4 M$ reviendraient aux consommateurs et aux producteurs des États‐Unis respectivement, et un surplus de 24,8 M$ par année aux producteurs des pays dont les produits sont soumis à une quarantaine.     

EXPONENTIAL DURATION: A MORE ACCURATE ESTIMATION OF INTEREST RATE RISK

We develop a new method to estimate the interest rate risk of an asset. This method is based on modified duration and is always more accurate than traditional estimation with modified duration. The estimates by this method are close to estimates using traditional duration plus convexity when interest rates decrease. If interest rates rise, investors will suffer larger value declines than predicted by traditional duration plus convexity estimate. The new method avoids this undesirable value overestimation and provides an estimate slightly below the true value. For risk‐averse investors, overestimation of value declines is more desirable and conservative.